FAQs: Registering security interests created by BVI Business Companies in the British Virgin Islands

Entering into security financing transactions with BVI Business Companies (BCs) is a familiar part of the global financial services landscape given the popularity of BCs. The cross-border nature of most such transactions often generates questions from the parties as well as onshore counsel in relation to various matters of BVI law. This note seeks to shed light on some frequently asked questions relating to security created by BCs over foreign assets.

Security interests created over specific types of assets such as security over shares in a BC, registered ships and aircraft, or land within the BVI are not covered in this note as they all have separate asset based security registration regimes and would require their own discussion.

Below is a list of ten of the most frequently asked questions which we encounter in connection with security granted by BCs:

Q1. Can a BC create security over its foreign assets?

Subject to its memorandum and articles of the association, a BC may create security over its assets by an instrument in writing. The efficacy of the security document will generally depend upon its conformity with any relevant governing law requirements for valid creation and enforceability.

Save where the security document is governed by the laws of the British Virgin Islands (BVI), the BVI Business Companies Act (as amended) (the BCA) prescribes no specific form or substance for the creation of a valid security document over the assets of a BC. All that will typically be required for the purposes of BVI law, is that the security document complies with the requirements of the foreign law by which it is governed. The parties to the transaction have the contractual freedom to select a governing law which works for the transaction while having regard to the situs of the secured assets. BVI law is quite flexible in this regard.

Q2. Is any action required in the BVI when a BC grants security over its assets?

Where a BC creates a security interest over its own assets, there are two separate and distinct registrations that need to be considered under the BCA:

• a public registration  in the register of registered charges maintained by the Registrar of Corporate Affairs (the Registrar) under section 163 of the BCA; and
• a private registration  in the register of charges maintained by the BC (or its registered agent) at its registered office under section 162 of the BCA.

Neither registration will have any bearing on the validity of the security document. However, it is worth noting that the public registration outlined in (1) above will determine the priority of the relevant security interests as against potential competing security interests created over the same assets as a matter of BVI law. Additionally, the private registration outlined in (2) above is a mandatory one under BVI law for any BC which has created a security interest over its assets and a failure to comply exposes the BC to a fine of US$5000.

BVI formalities such as stamping or notarisation are not required.

Q3. Where and how should such registration be made?

The public registration should be made on the register of registered charges in the BVI by submitting an application in the approved form to the Registrar. It should be noted that there is no requirement for the actual security document to be filed. Entries on the register of registered charges are meant to take the form of extracts of the relevant security document, containing certain details which would permit a reasonable understanding of certain contents of the security document (such as the parties thereto, the effective date thereof, the obligations secured thereby, and the assets charged or otherwise encumbered thereunder).

In the case of the private registration, the BC is also required to enter particulars of the security document on a register of charges, a copy of which should be kept at its registered office or at the office of its registered agent.

Q4. What if the security document has not been registered in the BVI?

It is not the security document itself but rather particulars thereof which would be filed for BVI law purposes. As indicated above, only the private registration is mandatory under BVI law and a failure by a BC to make such filing could expose it to a penalty.

While not mandatory and not necessary for validity or enforceability, public registration will typically be made as a condition to financing with a view to protecting the priority position of a secured party. There is no statutory or other timeframe for filings to be made. However, since priority is determined in accordance with the date (and time) of filing, best practice tends to be for filings to be made as soon as possible following the BC’s entry into the relevant security document.

A failure to file at a designated time will not necessarily have an adverse effect upon priority since filing may be made at any time following entry into the relevant security document. However, where there is a lapse of time between the entry into the security document and the public filing, a search of the public register of the relevant BC would be helpful in checking whether there have been any filings made in the interim which would take priority.

Q5. Who can deal with the public registration of the security document?

An application to file particulars of security interests in the public register may be made by the BC itself or by the person to whom the security interest is granted (or, in each case, their agents, acting on their behalf). An application is made by submitting the particulars in a format acceptable to the Registrar together with the applicable filing fee.

Q6. How does priority of the secured interests work?

Registering particulars of a security interest in the public register will give it priority over (i) all security interests which are registered against the BC in the public register subsequently; and (ii) all security interests which are created by the BC after the “commencement date” which are not registered. The commencement date is defined as either the date upon which a BC was formerly registered under older companies’ legislation in the BVI or was formally re-registered as a BC under the BCA. There are specific rules which apply to security interests created prior to the commencement date and given their complexity, you should speak to your usual Harneys contact for further advice on this area.

While public registration does go some way to address priority, it should be noted that priority of security interests can be varied with the consent of the holders. In addition, the priority of a registered floating charge is postponed to a subsequently registered fixed charge (but not an unregistered fixed charge) unless the floating charge contains a restriction (a “negative pledge”) on the power of the BC to create any future charge ranking in priority to, or equally with, the floating charge.

Q7. What is the time limit for registering a security document in the BVI?

There is no statutory or other time limit within which security interests must be registered with either the Registrar or in the BC’s private register of charges, however, for the reason stated above, security interests should be publicly registered promptly after they are created in order to establish a priority ranking.

Q8. What evidence will I receive of a registration having been completed?

Once registration is complete, the Registrar will stamp the filed particulars and issue a Certificate of Registration of Charge in relation to the relevant particulars. This certificate confirms the date and time the security was registered. The Registrar will typically forward a copy of the Certificate of Registration of Charge to both the BC and the secured party as conclusive proof that the registration has been done.

Q9. Do any steps need to be taken if the security has been amended or partially released?

Where security interests have been registered and the parties later agree to vary the terms of the underlying finance/security documentation, insofar as there is a material change to the previously filed security particulars, it is possible for a variation to be filed in connection with the originally filed security particulars to take into account the relevant changes to the documentation. It is best practice for such filings to be made where appropriate.

The BC, its registered agent or a BVI legal practitioner acting on behalf of the BC or the secured party can apply to the Registrar for the relevant variation to be filed.

As with the initial registration, the process for filing the variation involves drafting and submitting the relevant variation particulars in a format that is acceptable to the Registrar and payment of the relevant fee. Once the filing is complete, the Registrar will issue a Certificate of Variation which confirms the date and time of filing in respect of the particulars.

Q10. Does anything need to be done in the BVI when the security has been released?

Where security interests over the assets of a BC have been released in accordance with the terms of the security documents and the governing law thereof, a notice of satisfaction or release (either in whole or in part) should also be filed with the Registrar in order to de-register the security particulars filed in the BC’s public register.

The application may be made by BVI legal practitioners on behalf of the relevant secured party or the BC or by the BC’s registered agent. The mechanism for the release of the security interests will be determined by governing law issues but for the purposes of the de-registration in the BVI, such applications are typically submitted on the basis of documentary evidence of the release of the security interests.

It is worth noting that the registered agent or the BVI legal practitioner acting for the BC should not amend the BC’s records to show the discharge of a security interest without proof of the secured party’s release being given to the Registrar. This means that where a notice of satisfaction or release is to be filed on behalf of the BC by either its registered agent or its BVI legal practitioner, the notice must either be signed by the secured party, or supported by a statutory declaration given by the BC which verifies the matters stated in the notice. The registered agent of the BC should also attend to the updating of the BC’s private register of charges.

Once the notice of satisfaction or release has been filed with the Registrar, a Certificate of Release or Certificate of Satisfaction will be issued by the Registrar in connection with the relevant notice of satisfaction or release to which it relates.

For assistance on security registrations in the BVI, please contact the authors or your usual Harneys contact.

A prose version of these FAQs was originally published in World Financial Review.